In Frank v. Elgamal, C.A. No. 6120-VCN (Del. Ch.
July 28, 2011), read letter ruling here,
the Delaware Court of Chancery deferred making a decision on an application for
interim fees in a class action challenging an acquisition.
Where post-complaint, supplemental disclosures partially
mooted claims challenging a transaction, but price and process claims remain
viable and are still pending, is an interim fee request covering the disclosure
This suit was brought to challenge an acquisition of
American Surgical Holdings, Inc. by Great Point Partners I, L.P. Soon after the
preliminary proxy statement was filed, this action was instituted, alleging
breach of fiduciary duties, unfair price and process, inadequate disclosures,
and related claims. A definitive proxy statement was filed about two weeks
after a motion was submitted to the Court seeking expedited proceedings and a
preliminary injunction. The additional disclosures obviated the need for a
preliminary injunction and the merger closed about two months later.
The Court began its discussion with a recognition of the
American Rule which provides that, generally speaking, each party "pays their
own way" for lawsuits. There are well-established exceptions to the general
rule, such as in class actions, where, as here, the corporate benefit doctrine
is invoked. Under this doctrine, "the Court may order the payment of
counsel fees and related expenses to a plaintiff whose efforts result in ... the
conferring of a corporate benefit." This applies even where a common fund is
not created and when there may be no monetary or quantifiable benefit other
than additional disclosures.
When a defendant corporation or board of directors moots
a plaintiff's claim, as here, attorneys' fees may still be awarded if three
criteria are satisfied:
(1) the suit was meritorious when filed, (2)
the action producing the corporate benefit was taken by the defendant
corporation before a judicial resolution, and (3) the resulting corporate
benefit was causally related to the lawsuit. In challenging a fee application
in that context, the defendant must demonstrate that no causal link exists
between the benefit produced and the filing of the plaintiff's action."
Seems uncomplicated, right? Not if the fee request is an
Although an interim fee request was granted in the recent
Del Monte decision by the Court of Chancery as highlighted here,
each member of the Court makes his own independent application of the law to
the facts and the nuances of that application from the perspective of the
author of this decision required a different result. Here's why: We start with
the general rule that interim fee awards, according to this decision, "are
generally disfavored". See footnote 11 for cases cited. The Court
explained the reasons for the policy, but also recognized exceptions in
appropriate circumstances. See footnote 15.
Ultimately, it is within the Court's discretion whether
or not to entertain an interim fee request, even in cases such as this one
where there seems to be a consensus that the fee was earned at least insofar as
supplemental disclosures were obtained. Nonetheless, the Court basically
concluded that it was not required to address the issue at this stage and there
being no exigent circumstances militating in favor of a contrary conclusion, the
Court denied the application without prejudice and described it as being
Read more Delaware business
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